Are you retired or soon to be?

The Big Kahuna continues the current policy of giving universal access to a basic income for retirees. However, it extends the idea to all adults, not just those aged 65 and over. The level proposed is $11,000 (with no tax to pay on it) – less than the current level of NZ Super (for example, this is over $17,000 for living alone retirees).

The Big Kahuna was first published in 2011, some figures mentioned on this website may have changed. The Morgan Foundation will be releasing a new report with updated figures in the middle of 2016

The Big Kahuna includes a particular level of unconditional basic income (UBI), funded by a flat tax, to illustrate how the policy works. Other (age-dependent) UBI levels are also possible – for example, paying $15,000 (with no tax to pay) to everyone aged 70 and over would require a flat tax rate of 31% (and GST of 15%).

As well as reducing the level of basic income provided to retirees, the Big Kahuna proposal introduces a new tax on all capital – the Comprehensive Capital Tax or CCT. It applies to all economic capital – all real assets including land and housing. The tax applies a minimum ‘required’ return of 6% to the capital, permits the deduction of interest costs and taxes the balance at the flat tax rate. For an owner occupied home, with no mortgage, the CCT amounts to an annual charge of 1.8% of the home’s value.

These combined policies would have a severe effect on retirees if implemented immediately. Various complementary policies or self-help strategies would modify the adverse effects on retirees and ease the transition.

For some, sizeable Kiwisaver balances will be available, providing ample income to supplement the UBI and pay the CCT.

The CCT payment can be delayed (but an interest cost would be added to the amount each year). This amounts to retirees eating their house. For an average house, if the CCT were rolled forward as an accumulating debt (incurring a 6% real use-of-money charge each year), it would take around 25 years for the loan to equal the value of the house.

Retirees would have the option of downsizing their homes (which would, of course, reduce the ongoing CCT payable). They might choose to share accommodation with their family (or with others).

If a UBI for retirees is introduced at a substantially lower level than today’s NZ Super, a question mark emerges over the NZ Superannuation Fund. This fund, created out of tax revenue and now worth nearly $17 billion, was devised to partly fund NZ Super payments in the future. With a significantly lower transfer to retirees, it’s not clear that the fund would still be needed for this purpose